10.10.18

PELTZMAN EFFECTS.

Cheaper ride-sharing makes the option of leaving your car in the parking lot after a few drinks more attractive, reducing the risk of fatal accidents. In fact, this was precisely the intuition [Chicago economist John] Barrios et al. had when they started their analysis. Yet, when they looked at the data on fatal accidents from the National Highway Traffic Safety Administration (NHTSA), the answer was very different. Exploiting the staggered entry of ride-sharing into different cities, the authors were able to measure the changes in accident trends in the eight quarters that preceded and followed the introduction of ride-sharing. As the figure below shows, there is a rise in fatal accidents following the entry of ride-sharing into a city

On net, the ride-sharing services are a net loss in their markets.

If ride-sharing generates more costs than benefits, why has it become so popular? Do consumers irrationally ignore the costs? The answer is very simple: it is a classic externality. It’s not only the consumers of ride-sharing services that can die in accidents, but other drivers and pedestrians as well. Thus, the problem cannot be solved by banning or restricting ride-sharing services, but by forcing consumers to internalize the congestion costs via a gasoline tax or a congestion charge like the one developed in Singapore.

Perhaps that's not surprising. Uber and Lyft drivers, like their jitney predecessors of a century ago, need only consider the incremental cost of their trip, and the surge pricing contemporary information technologies make possible likely is an added inducement for for-hire drivers to get into the congestion.